Do’s & Dont’s in Stock Market
DO’S
1. Diversify - Diversification is must. Don’t Buy All Stocks in 1
sector or 1 Group. Make sure you invest in various sectors. One Should
Invest only 5%-10% in 1 Stock.
2. Invest through S.I.P. (Systematic Investment Plan) - Invest Small
Capital every month, don’t Buy All in 1 go. Let Say one has to invest 1
lac. Invest 10,000 Every Month For Next 10 Month in 5-10 Various Good
Fundamentally Companies. “Time is more important than Timing”
3. Trade & Invest Via Registered Companies with SEBI / Exchanges.
Track your Investment & Watch your Contract Notes. Don’t Deal any
Transaction with unregistered brokers/sub-brokers, intermediaries.
4. Always Follow Money management & Discipline in trading,
Diversify, Avoid over Trading & Never Loose More than 3% Capital in 1
Trade. Let your profit run with Trailing Stop Losses. Even 40% Success
will make decent profit over period of Time.
5. Do Trade with Trend as trend is only Friend. If Trend is not Clear,
Wait. Sometime No Profit is Net Gain. Trading is a Smart Business not a
stressful gambling. Trade to earn not to fulfill your addiction.
“Patience is the key of Success”
6. Always Plan before trading & investment. Trading without
planning is like taking a Journey without Destination. When you get into
any trade, you must know when to book profit, average, get out. Always
“Plan your trading and Follow unbiased consistently”
7. Do cut your losses quickly & keep running your profit. Never
shy in booking loss. Accept Failure of being wrong and search for
another trade. Never trade as per ego and emotions. Cutting loss is
important to sustain in market for long term.
8. Follow proper Strategy. If you plan to invest in a particular stock
for 1 month. Buy and hold. Don’t exit early if going on expected line.
9. Do Trade/Invest in fundamentally Liquid stock only. Avoid Penny
& small caps with no or little fundamentals. If you heard some big
news in that specific stock, and will go sky high then there is high
chance that you are last person who heard that. You might buy when some
big fat cats will exit and book profit and you will left with nothing
but junk stocks in losses for long time.
10. Always Be Invested, Never panic in Crash. If stock is
fundamentally stock and has great future. Be invested and Average on
S.I.P. Manner. In Short term, Fundamental may not work, but over period
of long term, it does works. “Crash is always good for Value
Investment”. Don’t exit in Panic. If you exit in Panic, you exit at very
cheap.
DON’TS
1. Don’t ignore other Expenses, when you trade, you will have to pay
brokerage fees, Securities Transaction Tax, Telephone, Electricity and
Internet bill. This could decrease your profit if you are trading for
very small gain.
2. Don’t Follow Crowd, Rumors, and Speculation. Common Sense is not
so common in market. Only Follow Market Trend. If market is rising and
everyone is saying Sell, Then BUY and Vice-Verse. Always Remember market
is Supreme and it goes in own way irrespective of any reason.
3. For Trading, Don’t Sell in rising market & Don’t Buy in Falling
Market. Avoid Searching Tops & bottoms. Finding Tops & bottoms
is like measuring horizon of Sky. Search Entry & Exit Level only.
For Investment buy every Month in good fundamentally stocks.
4. Don’t put all your money in Intraday Trading. Intraday trading is
always risky. A hard Fact, 90% people can’t create wealth in intraday.
So put only Small Money in Intraday and rest in Swing, Positional &
medium to long term investment. Fear and Greed factor will always be at
maximum level in intraday. Always have fewer positions in intraday
trading.
5. Don’t put all important money in trading. Only Trade with those
money which you are ready to loose and that money should not affect your
life in any way. There is no “Guarantee Profit” in Capital/Equity/Stock
market.
6. Don’t Always Chase performance. Past performance is not the
criteria for future success. Market is Dynamic and it changes more often
than weather in London. “ if Past performance is all what to do, All
librarians would be most richest one”
7. Don’t make big Investment. Buy fundamentally good stocks in
staggered manner, but don’t put all your money in 1 basket. Put some
money in Debt instrument for urgent requirement. One should not to more
than 80% in Equity. Insurance & Debt/Fixed Income also plays
important role in Asset-Allocation as per individual risk Appetite.
8. Don’t be emotional & sentimental. Market doesn’t have heart.
Market can Rise / Fall Irrespective of News/Fundamentals/technical’s.
Only believe Price not what your heart and intuitions say. Never be
biased towards a particular stock. If Boat is sinking, don’t pray to
God, Just Jump.
9. Don’t Blindly Follow News, Media reports, Information and
Corporate Development, It may be Speculation without any fact. Market
generally Discounts early, So Avoid Common Announcement and Information.
10. Don’t do Lots of margin Trading. Margin Trading only helps
brokerage companies to earn. Trade with what you have. Losses are also
in Multiple in margin Trading. You may earn some money with margin
trading, but one big correction makes all profit in losses. Cash Trader
must not loose more than 2%-3% capital in 1 Trade and Derivatives
(F&O) traders must not loose 4%-5% in Single Trade.
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